Tuesday, January 11, 2011

Expectations for the stock market in 2011

Happy New Year!

2011 kicked off with a bang as the Dow rallied 93 points and the S&P 500 up more than 1%. Most financial analysts and economists are predicting we are going to see more days like this in the next 12 months and that the stock market will continue to move higher; upwards of 10%.

At this point, I too am bullish for global markets in 2011.

With that said, I have been in this business long enough to know that the stock market will not move higher each and every week. We will see dips and sell-offs occur in 2011, just as we did in 2010. The sovereign debt issues in Europe, the sluggish real estate market, unemployment, disappointing earnings seasons, and China's raising of interest rates are just some of the challenges that will cause these down moves. In addition, the world economy will probably be forced to deal with issues no one has been able to predict at this point.

However, even with all these headwinds in 2011, I still believe the markets are headed higher on an annual basis. The stock market has been battling these headwinds for 2 years now, and still it continues to to rally. I learned early on that the trend is your friend... until it stops being so. From my vantage point, it's hard to see this rally stopping in the near term as the Federal Reserve is doing everything in its power to keep interest rates at all time lows and buying $600 million of Treasuries. Also, we can't discount the robust growth we are seeing from emerging markets, like India and China.

So what exactly am I saying? 2011 will be similar to 2010; we will see rallies, we will see sell-offs, but we will end the year higher than it is now.

In the interim I am looking forward to trading the increased volatility that will ensue over the next 12 months. Though everyone knows they should have an investment account to build for their financial future, too many people shy away actively trading a portion of their accounts. Unfortunately, most investors have sat in mutual funds for 10 years and have little to show for it except the fees they paid to their financial planners and the funds themselves.

If you are one of those people, I encourage you to take action in 2011 and diversify into actively trading a portion of your portfolio. I expect the volatility to begin increasing this month and whether you are a novice at trading or a seasoned veteran, now is an opportune time to take advantage of the market's swings.

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